China: contradictions of development

As the Chinese bureaucracy pushes the economy of China more and more along the capitalist road, more contradictions are appearing. The more the economy is integrated into the world market the more it will be prone to all the ups and downs of world capitalism. A serious slowdown on a world scale will have devastating effects.

Zhao Ziang died last month. Just over 15 years ago, Zhao was general secretary of the ruling Chinese “communist” party. When the great student uprising got under way back in 1989 and thousands occupied Tiananmen Square in the capital Beijing, Zhao came down to the square to sympathise with the students, hinting that he would meet their grievances and tried to persuade them to end their protests. The next day he was put under house arrest by the rest of the Chinese “communist” leaders and the army moved in to crush (literally) the protest.

In the last 15 years, China has been undergoing an economic transformation of global and unprecedented proportions. The Chinese economy is growing at 9-10% a year compared to about 5-6% in the rest of Asia, 1-2% in Japan and Europe and 3% in the US.

China now takes over 7% of world trade. That does not sound too much, but that figure has doubled in just the last few years and, at the current rate, it will double its share again in the next five years. Already, the US, the world’s greatest economic power, is running a huge trade deficit with China, buying $150bn more in Chinese imports than the US exports to China every year. Exports are rising at nearly 40% a year.

It is well known that, like the UK in the mid-19th century and the US in the mid-20th century, China has become the industrial workshop of the world in the 21st century. But there the similarity with those previous industrial giants ends. There are a host of differences and China’s development will not follow the pattern of Britain or America.

First, China comes after. It may be able to compete in world markets in manufacturing goods, but it still remains relatively small in terms of its national output, at $1.6trn a year, compared with the US at $11trn, and about the same as the ageing economic force of the UK, which generates $1.5trn a year.

Also the super-imperialist power of the US, with its huge military might and formidable financial biceps, can still keep China in check. The US has close allies in Japan, Taiwan and Korea that are determined to ‘contain’ any Chinese expansion. As Marx and later Trotsky explained, the ex-colonial countries (and China was colonised by Britain, France, Japan and the US) face a huge problem in developing their economy because their growth will threaten the interests of the existing imperial powers.

In the early 19th century, India had built up a significant textile and steel-manufacturing sector, financed by British investors, that began exporting to the UK. But once British industry got under way, the imperial power made sure that India’s rival manufacturers were blocked and eventually destroyed. Only now is India starting to have an industrial revival, but in new sectors like software services, where their well-educated graduates can compete against their peers in Europe and the US because they will accept such low wages. But even here, there are voices now calling for the blocking of ‘outsourcing’ of software jobs to India.

And there are many in the US that yell hard and long about China’s ‘unfair competition’, demanding quotas and restrictions on Chinese imports. So far, these voices have been blowing in the wind. That’s because now the big multinationals prefer to invest directly into China with their car plants and sports shoe factories and then export back into the US. That seems much more profitable than trying to stop Chinese imports and continuing to use ‘highly-paid’ Americans or Europeans that demand proper conditions, holiday pay, pensions etc.

Investment by the multinationals into China has been huge. Sure, most capital investment still takes place between North America, Japan and Europe. Only about 20% goes to other places. But of that, China takes the lion’s share, with around $50bn a year over the last 15 years since Zhao went into house arrest.

But that very investment also indicates why China will not develop into a major imperialist power like the UK and later the US. It’s not just because US imperialism is in the way. It is because China is not a straightforward emerging industrial capitalist economy as the so-called G7 nations were in the 19th and 20th centuries.

China had a social revolution around 60 years ago that did not just establish the foundation for a capitalist class and industrial development, as the revolutions of the 17th and 18th centuries did for North America and Britain. In order for China to escape the grip of imperialism, where there was a correspondingly very weak national capitalist class, a small educated urban class had to galvanise the multi-million strong peasantry in a war first against Japanese occupation and then against pro-capitalist and American forces that expropriated private property, nationalised or redistributed land to the smaller peasantry and organised state ownership and planning of infant industries. China could only develop through by-passing capitalism.

The irony of history was that China’s so-called communist leaders never expected or wanted to break with their national capitalist class. They were forced to in order to survive. Above all, they had no intention of letting the urban working class operate as an independent class force – ‘workers democracy’ was ruled out and crushed from the beginning. That is the one policy that the Chinese leadership has followed through all its twists and turns from the Great Leap Forward to NEP to this day, as Zhao Ziang found to his cost.

Even in 2005, around 40% of industry is in state hands. And the vast bulk of agriculture is controlled by communes and not by modern capitalist farmers or multinational agro companies. At the same time, most of the new industry, particularly those sectors making consumer goods or hi-tech products are privately owned, usually through joint ventures with foreign corporations (that provide the funds and know-how) and Chinese companies owned by the sons and daughters of the Chinese communist leaders (who provide the labour force, the legal approvals and the corruption).

The state sector continues to employ the bulk of the industrial workforce in ageing steel, textile and mining sectors, while the real gains from industry are milked by the private and foreign-owned companies.

China is a great economic and political hybrid. Its leaders continue to go through the motions of having a ‘Communist’ political system. But they talk less and less of ‘socialism’, while they drive hell-bent on converting the economy into a global capitalist power. But a hybrid is a contradiction. And contradictions cannot stay unchanged forever. Eventually something will have to give.

China will not become a major capitalist economic power unless two things happen. First, there must be a major confrontation with the existing imperial superpower, the US. Either China will come to blows over its aim of annexing Taiwan, long a running sore in the side of the Chinese leaders or its economic emergence will force reactionary forces in the US to act against China’s economy.

That’s the external contradiction for China under world capitalism. The internal one is that, as the state sector is dismantled and, with it, the livelihoods of millions of miners, steel and engineering workers; and inequalities of income and wealth expand (as they inevitably are under capitalist development), then huge resentment and antagonism is going to arise.

China is already smouldering beneath the surface of apparent growth and prosperity. If you doubt that, just read the excellent and astounding article written by Heiko Khoo back last December. He shows that it is not just Zhao Ziang who has been under house arrest for last 15 years in the grip of a corrupt, autocratic and militarist clique. The whole of the Chinese masses have been under arrest too.

What provoked the Tiananmen ‘incident’ over 15 years was not just the desire for political freedom, but also a realisation that the ‘capitalist path’ adopted by the Chinese leaders was distorting the economy, widening inequalities and driving corruption. Inflation had been moving up sharply, particularly in the cities, and economic growth and employment had slowed.

As we enter 2005, the Chinese economy seems far from being in that state of crisis. Economic growth is still strong at around 9% (if we can believe the government figures) and exports are motoring. But the contradictions remain.

The old worry about China was that it would grow fast enough to be able to provide jobs for those hundreds of millions living in countryside desperate to get off the land and end their miserable poverty. The usual story was of thousands lying around the railway stations waiting to get a free ride to the big cities.

The new worry is that China has over-invested in capital equipment and plant to produce all the cheap goods that the Western imperialist countries are sucking in. Any slowing of the world capitalist economy could leave China with a huge debt hangover that will blow the economy apart.

So far neither of these worries have materialised into a full-blown crisis. But that is partly because state control and planning have weakened the volatility and anarchy of the capitalist market. With Chinese leaders almost day by day dismantling the state sector and planning controls, they are increasingly exposing their people to the forces of the world market, as they greedily reap the rewards of the profit economy.

China has already joined the World Trade Organisation, the trade body of capitalism. Under the terms of its accession, it has had to open up its economy to foreign investment and in 2008 it must free its currency from state control. Next time the world dives into a recession, China will not escape the impact of any global capitalist crisis as it did in the 1980s and 1990s.